Zerodha files papers with SEBI to launch 2 MF schemes

Zerodha's asset management company, Zerodha Asset Management, has filed draft papers with SEBI (Securities and Exchange Board of India) to launch two distinct mutual fund schemes -- Zerodha Tax Saver (ELSS) Nifty Large Midcap 250 Index Fund and Zerodha Nifty Large Midcap 250 Index Fund (ZN250).

The filing of papers for two mutual fund schemes comes a month after Zerodha, which is India's largest online stock broker, received its license from the SEBI to operate as an asset management company.

ELSS Nifty LargeMidcap 250 Index Fund

This mutual fund scheme is an open-ended passive ELSS scheme replicating or tracking the NIFTY LargeMidcap 250 Index, with a 3-year lock-in period and tax benefit.

The eligible investors in the scheme are entitled to deductions of the amount invested in units of the scheme to such extent (presently ₹1,50,000) under Section 80C of the Income Tax Act, 1961.

“The scheme is an equity-linked savings scheme and intends to meet the requirements of any other notifications that may be prescribed by the bodies concerned from time to time.”

The papers say the investment objective of the scheme is to generate returns that are commensurate with the performance of the Nifty LargeMidcap 250 Index TRI (underlying Index), subject to tracking error. "However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved."

Being an index scheme, its net assets will be invested in the same weightage as the stocks constituting the Nifty LargeMidcap 250 Index.

Zerodha Nifty LargeMidcap 250 Index Fund

This scheme is an open-ended scheme replicating/ tracking the Nifty LargeMidcap 250 Index. Zerodha says its investment objective is to generate returns that are commensurate with the performance of the Nifty LargeMidcap 250 Index TRI (underlying Index), subject to tracking error.

The scheme will cover equities and equity-related securities covered by Nifty LargeMidcap 250 Index, and debt and money market instruments.

The funds raised under the scheme will be invested in the stocks, and the scheme, being an index scheme, the net assets will be invested in the same weightage as the stocks constituting the Nifty LargeMidcap 250 Index.

The scheme will not invest securitised debt, debt instruments with special features (AT1 and AT2 Bonds); debt instruments with SO/CE; overseas investments; ReITs and InVITs; units of other mutual funds; repo or reverse repo transactions in corporate debt securities; and credit default swap transactions.

Zerodha had reported net profits of ₹2,094 crore on a revenue of ₹4,964 crore in FY22. Currently, 70% of Zerodha’s revenue comes from broking and trading fees, 15% from treasury (the company’s own funds invested mostly in debt and fixed deposits), float (unused customer funds) generates 3-3.5% as they are parked as short-term FDs with clearing corporation and, and the remainder (15%) comprises account opening fees, annual maintenance charges, DP charges, and others.